CBN power sector interventions hit N1.3bn in 7 years

The interventions which are part of Federal Government’s effort to ease liquidity challenges and improve infrastructure in the Nigerian Electricity Supply Industry were expected to improve supply to consumers.

Checks on fourth-quarter economic report (4Q’2020) of CBN showed that the interventions include, Power and Aviation Intervention Fund about N300 billion, Nigerian Electricity Market Stabilisation Facility, NEMSF, at N213 billion, about N140 billion Solar Connection Intervention Facility, over N600 billion tariff shortfall intervention as well as a recent N120 billion intervention designed for mass metering among others.

The CBN interventions were also necessitated by the inability of the sector to finance itself as tariff shortfall, regulatory lapses and acute infrastructure impede the growth of the industry.

But industry experts have warned that there must be a clear repayment plan for these interventions by the market, noting that a market driven tariff must be implemented for the sector.

They, however, added that the apex bank deserves commendation on the interventions, especially the level of transparency on the initiatives stated that repayment plan remained a critical issues as well as feasible impacts.

Experts at Templar Law had recently noted that while CBN is not a sector regulator, in view of its exposure to the sector through its various interventions it was critical for the apex bank to influence policies that would address the general market imbalance as only a viable market will ensure the recovery of its funds and preclude the need for any future interventions.

The experts, in a document authored by the legal firm’s Partner, Dayo Okusami and Senior Associate, Moses Pila said: “Gas prices and other elements of the capex for the sector participants are dollar-denominated. With the electricity tariffs in Naira, there is a perennial mismatch between revenue earnings and the capex inputs.”

They explained that while the exchange rate in the tariff is usually fixed, the fluctuations in the general foreign exchange market make it challenging for the players in the sector to procure foreign exchange at the rate stated in the tariff.

They therefore advised that the CBN may opt to either provide further capitalisation to Nigeria Bulk Electricity Trading Company, NBET or some form of payment support to enable NBET adequately meet its payment obligations under its power purchase agreements.

According to the experts, “This will in turn enable the generation companies to meet their payment obligations to their gas suppliers. The CBN may also choose to provide a special foreign exchange dispensation to the power sector to mitigate the challenges.

“Another area that the CBN could actively influence is the area of collection leakages at the DisCo level. Even where, NBET has not been able to exert the required influence on the remittance level of the DisCos, the CBN can use its influence in the banking sector to act. For example, because every DisCo is guaranteed by a commercial bank, the CBN can exert regulatory influence over the conduct of the commercial banks regarding the DisCos’ revenues and ensure the sanctity of collections and the priority of the remittances to the electricity market,” the duo said.

On his part, President, Nigeria Consumer Protection Network, Kunle Olubiyo noted that given the level of financial liquidity in the sector, support in terms of soft loans would provide leeway for the sector.

He noted that the schemes and financial interventions remained lauded but demand urgent review, especially with supporting policies that would drive holistic results from the programmes.

Also speaking, an expert with PWC, Habeeb Jaiyeola said, such intervention remained normal across the world especially if the government must catalyse economic development, noting that such move would help in controlling cost of borrowing in developing sectors.

According to him, the CBN intervention remains a positive tool for the development of the sector, adding that the payback has to be enforced to ensure the fund remains available for further critical interventions.

Recall that the apex bank had at some point escrowed the accounts of the DisCos, making the need to repay the loans as priority, the fourth quarter report of the bank had showed that repayment stood below 30 per cent.